All memos tagged #finance-lexicon

Payback Period is the time it takes for an investment to recover its initial cost from the cash it generates; in Unit Economics, it is the number of months a customer's gross profit takes to repay...

Contribution Margin is revenue minus all variable costs, expressed per unit or as a percentage of revenue: the amount each sale contributes toward covering fixed costs and generating profit. In cost...

Lifetime Gross Profit (LTGP) is the total gross profit a business expects to earn from a single customer over the relationship, calculated as lifetime revenue multiplied by realized gross margin, and...

Lifetime Value (LTV), also called customer lifetime value (CLV), is the total value a business expects to earn from a single customer over the entire relationship, usually expressed as revenue or...

Churn Rate is the percentage of customers, or of recurring revenue, lost during a period, calculated as the customers lost in the period divided by the customers at the start of it. Also called...

Gross Margin is revenue minus cost of goods sold (COGS), expressed as a percentage of revenue: the share of each sales dollar left after paying the direct costs of producing and delivering what was...

The Finance Glossary is a collection of the finance, accounting, and business-metrics terms John Zdanowski uses in his CFO work, gathered so founders, operators, and investors can read his models,...

Highest and best use is the real estate appraisal term for the reasonably probable and legal use of land or a property that is physically possible, appropriately supported, financially feasible, and...

A Credit Box is the objective set of requirements, or investment criteria, that an underwriter uses to determine whether or not to make a loan. A lender's credit box typically sets thresholds on the...

A Schumer box is the standardized table in United States credit card applications and solicitations that summarizes a card's rates and fees in a uniform format. The box is named for Chuck Schumer,...

Financial Planning and Analysis (FP&A) is the finance function that helps an organization plan, measure, and steer its financial performance through budgeting, forecasting, modeling, and performance...

The Magic Cohort is the sub segment of customers who represent a set of customers that have the highest LTV:CAC ratio. It’s a fallacy to only look at the Magic Cohort because you also spend money on...

A Fractional CFO is a financial executive who leads a company's finance strategy, sales development, growth opportunities, and finance department on a part-time or contract basis rather than as a...

A Financeable Equation is a business story supported by demonstrated positive unit economics, stated precisely enough that a lender or investor can underwrite capital against it. The story says how...

The runway calculation measures how many months a company can keep operating before it runs out of cash, computed as cash on hand divided by the monthly net burn rate. Burn rate is the pace at which...

LTV:CAC is the ratio of a customer's lifetime value (LTV) to the Customer Acquisition Cost (CAC) spent to win them, and it is the most important component of a Financeable Equation. A ratio above 1:1...

Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win one new customer, calculated as the acquisition costs of a period divided by the number of new customers...

Unit Economics are the revenues and costs of a business expressed per fundamental unit of work (a customer, an order, a product line, a campus) rather than in aggregate. Looking at a business through...